Judgment:
(a) demanded from the appellants duty of Rs. 2, 40,620.37 in respect of "heating elements" cleared and captively consumed by them during the period from 16 3.1976 to 23.7.1981; (b) imposed a penalty of Rs. 5,000/- on the appellant under Central Excise Rule 173Q ; and (c) appropriated to Government the cash security of Rs. 5,000/- towards the value of 525 heating elements which had been seized but provisionally released to the appellants 2. The process of manufacture of heating elements and their composition are described thus: The glass fabric yarn is knitted into fabric in a hand operated knitting machine. Simultaneously, Nichrome wire is wound on strands of asbestos yarn and the same is insulated with glass fibre yarns (filament yarn) in a winding machine which is operated with the aid of power. Then the insulated Nichrome wire so manufactured is stitched with knitted glass fabric mentioned above and a thin M.S. Ring is placed inside the glass fabric net for giving final shape so that the heating element sits on the aluminium housing of the heating mantle. The leads of the Nichrome wire are also insulated in glass fibre. Thus the heating element of heating mantle consists of components viz. glass fabric. Asbestos yarn, Glass fibre, Nichrome wire and M.S. Ring. On weighing one sample of heating element of code No. GL 43 06 (2000 ML capacity) its various components were found to weigh as under:(i) Weight of Nichrome wire 24 gms.(ii) Weight of M.S. Ring 20 gms.(iii) Weight of knitted glass fabric 115 gms.(iv) Weight of glass fibre and asbestos yarn 96 gms.
Thus the ratio of mineral fibres and yarn and of other materials viz. Nichrome wire and M.S. Ring is 211 : 44.
3. The Collector held that since in the manufacture of complete article i.e. heating element, one of the component parts, viz. heating coil was manufactured by the party with the aid of power, and as the mineral fibre and yarn content predominated over the other materials in weight, duty was chargeable on the heating element under item No. 22F (iv) of the Central Excise Tariff Schedule (CET for short). Since the heating clement was mainly used in laboratories and educational institution for heating solutions etc. the Collector further held that they were not classifiable under item No. 33C, CET as domestic electrical appliances, as claimed by the appellants. Since the party had not intimated the department about manufacture of the goods, the Collector invoked the longer period of limitation for demand of duty.
4. We have heard Shri Day a Sagar. Consultant, for the appellants and Smt. Dolly Saxena, Sr. D.R. for the respondent.
5. Shri Daya Sagar contends that functionally the subject goods do not owe their characteristics to the asbestos component but to the Nichrome wire. Moreover, following the Tribunal's decision in the case of CCE Madras v. J.P.G Engineers (P) Ltd. these goods were not direct manufactures from asbestos fibre or yarn but made inter alia from knitted glass fabric which is the direct manufacture from the fibre or yarn. Therefore, for the test of predominance, the glass fabric cannot be taken into consideration. Again, the subject goods were not known to the trade as manufactures of asbestos yarn or fibre.
The test of trade parlance was not satisfied in this case, reliance being placed in this context on the Supreme Court judgment in the case of Atul Glass Industries (Pvt.) Ltd. v. Collector of Central Excise 1986 (8) ECR 513 and the Tribunal's decision in the case of Shriram Jute Mills Ltd. v. Collector of Central Excise Calcutta .
6. The Bench pointed out to Shri Daya Sagar that the classification of similar goods had come up previously before the Tribunal in the case of Raga Industries v. Collector of Central Excise, Madras Appeal No.E-315/83-D disposed of by Order No. 435/87-D dated 27 5.1987 which held that heating elements were classifiable under item No. 22F (iv) CET.After perusing the said order, Shri Daya Sagar reiterated the submissions based on trade understanding As in the Atul Glass Industries case (supra) 1986 (8) ECR 513 the goods herein owe their functional characteristics to the Nichrome wire the asbestos providing only insulation The Sr. D.R. on her part, relied on the Tribunal's decision in the case of Raga Industries.
7. We have considered the submissions of both Fides. In the case of Raga Industries (supra), the goods were similar. The manufacturing process adopted in that case was as follows: Glass fibre yarn is first knitted in a hand-operated knitting machine to the desired length, and width. Nichrome wire is wound spirally on a separate glass fibre yam strand in a winding machine operated with the aid of power. Two H.P. Electric Motors are fitted to the above winding machine for operation on power. The strand thus wound is pushed into the two layers of Glass Fibre Sleeves. The same is then stitched by hand below the knitted fabric and M.S. Ring is placed inside the knitted fabric and stitched to give final shape to the heating element so that ii can be conveniently housed in the Aluminium housing of the Heating Mantle. Finally, testing of the heating elements, tapes and band heaters is done with the aid of power.
It will be seen from the above that the manufacturing process adopted in the present case is practically the same as in the Raga Industries case. In order No. 455/S7-D dared 27.5.1937, the Tribunal held that having regard to the considerations that- (a) the heating coils had been admittedly manufactured with the aid of power (the same is the case here too) and, therefore, liable to be classified under item No. 22F (iv), and (b) in the finished product, namely, heating elements the mineral fibre/- yarn content predominated, the heating element would be classifiable under item No. 22F (iv) 8. However, as pointed out by Shri Daya Sngar for the appellants, this Tribunal had held in CCE Madras v. IPG Engineers (P) Ltd. that though goods manufactured directly from mineral fibres and yarn were classifiable under item No. 22F, articles manufactured out of such manufactures would not be so classifiable.
This conclusion was based on the construction put on the words "manufactures therefrom" occurring in the said items. On this basis, it was held that though compressed jointing sheets made out of ashes lot fibre/yarn were classifiable under item No. 22F, gaskets which were articles made out of such sheets and, therefore, were not direct manufactures from asbestos fibre/yarn were not classifiable under item No. 22F, but under item No. 68. If this analogy is applied, there is a case for saying that the healing elements in the present case which are not direct manufactures from mineral fibre/yarn and contain inter alia non-asbestos material in its composition are classifiable under item No. 68 and not 22F (iv).Mahindra Engineering and Chemical Products Ltd. Pune v. Central Excise Pune has expressed a view contrary to the one in the case of Collector of Central Excise Madras v. IPG Engineers (P) Ltd. (Supra) 1986(8) ECR 341. That case also involved interpretation of the words "manufactures therefrom" occurring in Item No. 22F (iv) of the CET. The Tribunal has held that the entry clearly covered all manufactures made from glass fibres/yarns irrespective of the fact that the raw material undergoes some intervening processes in the same or another factory ending up in the final manufacture The point of dispute was whether deep chamber housings manufactured by the appellants from bought out glass fibre fell under Item No 22F (iv) or Item No. 68 CET. Based on the aforesaid reasoning, the Tribunal held that the goods rightly fell under Item No. 22F (iv) which was more specific than Item No. 68.Dalmia Laminaters v. Collector of Central Excise Calcutta Appeal No. E 307/83D disposed of by order No. 902/87D dated 16th November, 1987 1988 (sic) ECR 307 the Tribunal, construing the expression (sic) "jute manufacture" in Item No. 22A of the CET held that the said expression" was (sic) cover, apart from manufactures wholly comprising jute fibres of (sic) manufactures comprised not merely of jute fibre or yarn but (sic) other fibres or yarn. Support for this view was derived from the (sic) in the entry brought about in the 1972 and 1977 Budgets. It was further held that the reference to predominance in weight in the entry was with reference to the relative percentages by weight of the different fibres/yarn comparing a given manufacture and if jute predominated, then the manufacture would fall under Item No. 22A. The item would not appear to cover a manufacture which comprised of a jute manufacture as defined in item No. 22A and any other article not falling under item No. 22A such as in that case involving laminated jute bags or articles made out of hessian fabric and a plastic film or sheet laminated with the fabric. It was held that such a composite article would not fall under Item No. 22A since it would no longer be a mere jute manufacture. This view would seem to accord with the conclusion in the case of Collector of Central Excise Madras v. IPG Engineers (P) Ltd. 11. In the light of the aforesaid discussion, we feel that the decision in the case of Raga Industries (supra) requires reconsideration. As stated earlier, there is a direct conflict between the decision in the case of I.P.G Engineers (P) Ltd. and Mahindra Engineering and Chemical products Ltd. The matter is best resolved by placing it before the President for considering setting up a Five-Member Bench to hear hear this appeal.